Coffee-producing countries collaborate to find a pricing solution

Posted: 14 March 2019

The National Federation of Coffee Growers of Colombia (FNC) held its annual media briefing during last week’s National Coffee Association (NCA) Convention in Atlanta, Georgia (7-9 March). The meeting typically provides an outlook on Colombia’s coffee production for the current coffee year and prospects for future production. However, this year’s meeting was quite different and had a much more emotional tone.

Roberto Velez, CEO of the FNC was again present as was Juan Esteban Orduz, president of the Colombian Coffee Federation, Inc, the North America subsidiary of the FNC, but this year, they were joined by Vanusia Nogueira, executive director of the Brazil Specialty Coffee Association (BSCA), Samuel Kamau, executive director of the African Fine Coffees Association (AFCA), Ricardo Perales, managing director, Perhusa, a Peruvian coffee exporter and via Skype, Rene Leon executive director of Promecafé. Rather than speaking about Colombia’s production, the meeting focused on the critically low coffee prices and the continuing struggle of coffee farmers in all coffee-growing countries to not only produce coffee when prices are below the cost of production, but to also provide for their families.

Roberto Velez (FNC) shared that there is enough coffee to sustain and maintain the business, but while there is growth in the production of coffee because of the demand for coffee, there has been a change in the way people buy coffee. “They want it cheaper,” he lamented.

“So, while some are making a lot of money, others are starving,” said Vanusia Nogueira (BSCA).

“Farmers are not able to produce coffee at USD $.97 per pound [where prices have been hovering], said Velez. “These are human beings, families. Are we supposed to tell them to grow bananas instead? They know where to move that is more profitable.” He added that the lack of opportunities in Latin America is pushing migration to the United States, and in Africa, they are migrating to Europe. “We want the coffee industry to be a role model for all agroindustry’s of the world,” Velez explained. “We want co-responsibility throughout supply chain — we see ourselves as links of same supply chain and as such we need to address issues such as coffee prices, climate change, next gen, etc.”

Samuel Kamau (AFCA) said the situation in Africa is similar to Latin America but the cost of production is higher because of the lack of infrastructure and inefficiencies. “The price of coffee not enough to meet cost of production and governments cannot keep subsidizing the costs of production.”

Ricardo Perales (Perhusa) noted that agriculture is a hugely important export industry in Peru, particularly coffee, but producers are migrating to other crops and industries, which is causing problems. “[Aside from crops like avocados and industries like mining] many coffee farmers are moving to crops like marijuana, coca and poppy because the legislation is not there to prevent it,” he said, adding that this is resulting in children leaving schools and child labor.

Rene Leon (Promecafé) said the situation in Central America is desperate. “Farms are in bad shape because farmers are neglecting them (no pest management, pruning, renovation) and abandoning them. These are ideal conditions for migration to other crops and to other countries,” he said.

Nogueira, speaking with heavy emotion, said, “People think Brazil is not suffering, but we are suffering too. In fall 2018, we were managing, now with prices so low, it’s difficult, we are not managing. We have social and environmental problems — we must think about food, water and housing for families. We need money to survive. This is a situation affecting all coffee farmers.”

Nogueira shared data from the Brazilian Confederation of Agriculture and Livestock (CNA) in partnership with the Market Intelligence Center of the Federal University of Lavras, showing that in Arabica-producing regions in January, there was an average Total Operating Cost (TOC) of USD $0.87/lb. In the same period, the average sale spot price was $0.81/lb, 7% percent lower than the TOC. This has resulted in an operating profit of $0.06/lb.

“We are looking for alternative solutions [to the low coffee prices situation] but there aren’t many,” said Velez, noting that all options are open. Increasing coffee consumption in producing countries is one such strategy. “We must improve internal consumption. Brazil is doing a great job, but in Africa and other Latin American countries, we need to do better,” he said.

When a member of the media asked about the possibility of more farmers producing specialty coffee as a strategy, Nogueira responded, “if too many people are doing specialty, it won’t be specialty anymore,” adding that “if more and more producers enter the specialty market, specialty coffee prices will drop.”

After the first World Coffee Producers Forum in Medellin, Colombia in 2017 where the low coffee price situation was first addressed, leaders from the major coffee-producing countries formed ad hoc group. In 2018, they sent letters to coffee roasters .to commit to not paying below cost of production. “But six months later, prices are still below a dollar. We are tired of hearing ‘the market is the market.’ “Producers can’t sell below cost of production, it’s simply not sustainable,” Velez stressed. He said the time has come to create a list price for coffee that includes cost of production and some profit. “[We need to say] ‘this is what you must buy it at. This is our cost of production.’”

Juan Esteban Orduz (FNC North America) said that the members of the ad hoc group will meet in Kenya in two weeks to discuss solutions further. “Economic stability will be primary topic of conversation at the 2nd World Coffee Producers Forum [10-11 July in Campinas, Brazil].” He added that Jeffrey Sachs, the keynote speaker from the first Forum who was also commissioned to analyze the coffee price crisis, will present a final report on how to manage the situation at the second Forum.

The one upside to the coffee price crisis, said Orduz, is that the producing countries are now collaborating. “Never before have we had group from the various producing countries working together, speaking more, and ready to take action. It is similar to what the NCA does for its members… [this is a good thing.]”